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"It is an African priority that the financial sector be strengthened"-Interview with Gabriel Negatu, AfDB Director, Governance and Financial Reforms

  • The AfDB, the World Bank and other partners are involved in a new initiative: "The Partnership for Making Finance Work for Africa"
  • Only 20% of the African population have access to financial services

The African Development Bank Group, the World Bank and other partners are working on a major initiative aimed at strengthening the financial sector’s contribution to economic growth and the well-being of the continent’s population. The AfDB Director for Governance and Financial Reform, Gabriel Negatu, sheds light on the Partnership for Making Finance Work for Africa in an interview with the AfDB’s internal e-newsletter, Bank in Action, on the sidelines of the 2nd African Economic Conference, held in Addis Ababa from November 15-17, 2007.

Question: You have made a presentation at the African Economic Conference, a gathering of researchers and policy-makers. Do you think that this kind of conference can foster good economic governance in Africa?

Answer: It is a very important issue. As you know, the theme of the African Economic Conference was "Opportunities and challenges of development for Africa in the global arena". Within that context, my presentation was on "the Partnership for making finance work for Africa". The main component of the presentation was to introduce a new partnership that has been created by the AfDB, the World Bank and DMZ to mobilize resources for Africa’s development by strengthening the financial sector. This is very much consistent with the African Development Bank’s view on economic and financial governance. We are of the view that the development of the financial sector will be an important way to finance Africa’s development work whether it is infrastructure, agriculture or any other sector; while ODA will be a main component of Africa’s development financing, we also believe that if the financial sector in Africa is organized and enabled to prosper, then that would be another domestic source of financing. Our focus is on making sure that the financial sector through good governance of institutions and policies and knowledge and partnership is strengthened so that African finance is used for Africa’s development. The Partnership for Making Finance Work for Africa is a major initiative to support the efforts of African countries to accelerate economic growth and reduce poverty. The partnership is based on the recognition that financial sector development can be a strategic driver of private investment, employment generation and economic growth. The partnership, therefore, aims at scaling up resources for the development of the financial sector in Africa and enhancing the sector’s contribution to economic growth and poverty reduction.

Question: The African financial sector does not play such a strong role as in other regions of the world. Has your study on making finance work for Africa outlined the weaknesses?

Answer: Indeed, that is one of the main conclusions of our presentation. There is now an agreement that it is an African priority that the financial sector in Africa be strengthened and that good financial governance means strengthening the financial sector whether it is banking or non-banking, intermediation, micro-credit, credit to the private sector, credit to households, credit to sector development. All of these have to be strengthened and the way to do this is of course partly to attract private capital but there is also a wealth of African resources that need to be organized and capitalized also. Our main conclusion is that there is a new partnership between Africa and its partners to strengthen the financial sector as a way to finance Africa’s development.

Question: AfDB Group President, Donald Kaberuka, recently pointed at high remittance costs as an obstacle to remittances be channeled to development work. Does the Partnership for Making Finance Work for Africa initiative address this issue?

Answer: Yes, definitely. One of the components of this new partnership is to improve the efficiency of the financial sector in Africa. Today, it costs more money to transfer resources to Africa or from Africa: whether you are living in the country’s capital and you want to send money to your relatives in the village, it costs more; when you want to borrow, it costs more. With regard to credit availability, only 20% of Africa’s population has access to credit, whereas in Asian countries, the rate is close to 50%. The efficiency of the financial sector will improve money transfers that President Kaberuka talked about. If Africans in the Diaspora want to send money, we will want to make sure that the systems are efficient, accountable, reliable by reducing the transaction cost. People will then have more confidence and more access to financial services. There is a very strong linkage to making finance work for Africa and the comments that President Donald Kaberuka gave on money transfer from the Diaspora to the continent.

Question: Apart from strengthening financial sectors, would you also recommend widening the array of financial services African banks offer to their customers, including advice on interest rates, considered very high in Africa?

Answer: Well, this will need to be addressed based on a country-by-country approach. There is no single approach that works for all countries. Part of this new partnership is knowledge generation. One of the things we are going to do is to take stock of the financial sector development in each country. There will be a mapping exercise to generate knowledge and to understand where the gaps are. Therefore, if the issue is efficiency, then we will work with those countries to improve efficiency; if the issue is policy, then we will work with those countries to improve policy and if the issue is capacity, then we will work with those countries to improve their capacity to make the financial sector efficient, accountable and accessible to all.

Question: Any countries in the pipeline?

Answer: Yes, some countries have shown willingness to reform. Several countries in the UEMOA (the West African Economic and Monetary Union area), countries like Tanzania, Rwanda, Ethiopia, Kenya, as well as countries in Southern Africa. There are several countries that are already beginning to reform their financial sectors. Now, what we are aiming at is to make sure that there is a coherent strategy to make sure that the financial sector’s development is a priority at the country level, bringing the private sector, academia and researchers together because these are all stakeholders. It is not just a government challenge. The private sector clearly has a role and needs to be involved, academia needs to make the research and bring the knowledge forward; civil society through micro-credit. We need the participation of all stakeholders to make sure that we address two major issues facing financial services: access and depth, "access" referring to the number of people having access and "depth"referring to the depth of services and products that you access. When you talk about micro-credit, for example, you have to bring the civil society, because it is very active. There is a whole range of stakeholders who need to come together to make sure that there is a coherent national strategy to make this happen.

Question: Can you name the countries you are going to start with?

Answer: I think it is premature for me to start naming the countries. We have about 15 international partners in the Partnership for making finance work for Africa: the World Bank, IMF, DFID… all the major partners have joined in the initiative, and we are going to find out what each partner is doing in each country. Then, based on the gaps that have been identified, we will launch knowledge generating activities. Several partners have expressed an interest, and we are working very closely with the office of the Bank’s chief economist in the generation and dissemination of knowledge from the AfDB side.

Question: Are you going to involve local researchers or economic research institutions in country studies you will carry out?

Answer: Absolutely. The AfDB cannot do it all, but the AfDB can play a critical leadership and catalytic role. Early next year, there will be a secretariat for the new partnership called "Making Finance Work for Africa". The secretariat will be hosted at the AfDB governance department. It will be a light coordination secretariat. It will not be implementing, but it will identify the gaps, the needs and the partners. We need to work on this, bring them together and mobilize the resources. The secretariat, which we expect to launch in March 2008, has been designed to be light, but play a key coordination and facilitation role. The actual work will be done by stakeholders in the country, by the government itself and by partners working in a given country on financial sector development.

Question: How are you going to finance the secretariat? Through a multi-donor trust fund?

Answer: Well, we are moving away from the idea of trust funds, I think there is a general consensus now that there are too many donors’ trust funds. The German government has pledged about 3 million euros for the first two-year of the secretariat’ activities. The secretariat will identify an activity and partners, who will work together, including financing the activities. For example, we are going to be doing studies on financial regional integration in Africa. The AfDB is going to take the lead on that. This activity will have five or six partners working on it (the World Bank has expressed an interest, IFC has expressed an interest…), and it will be co-financed by the partners involved in it. So each activity will be financed by the partners working in that area; instead of creating a new trust fund, we are doing the financing, activity by activity. We do not expect financing to be an issue here.

Question: What are the outcomes of the presentation of this new initiative to participants in the African Economic Conference?

Answer: Well, the main objective of the presentation was to introduce this new partnership. In that process, we identified the relevance of good financial governance in Africa, why this financial sector development is required and why the partnership is required. Through our presentation, we highlighted the study that was done to show the problems in the financial sector. Once we have demonstrated the need and that this is Africa’s priority, we asked participants, researchers, policy-makers, NGOs, all the participants in the conference to become members of this new partnership. We have officially made an offer to all the stakeholders – private sector, public sector, academia, and the civil society – to join this partnership. Now, we will put out the invitation to join the partnership in "Making Finance Work for Africa", in order to encourage all stakeholders to be champions in their own country. In each country, we need to have groups working on making finance work for Ethiopia, making finance work for Algeria, Tanzania, and so on. Each country will have its own Making Finance Work committee. In this initiative, we really rely on networking, knowledge, advocacy, resource mobilization, generating ideas, drawing best practices, global and regional best practices, adapting them to the country. It will be a wide range of activities.

Question: What are the main indicators pointing to Africa’s financial problems?

Answer: Our study comes out with several findings. First of all, private sector credit in Africa remains low. Sub-Saharan African banks are the institutions that lend the least. Second, private sector actors in Sub-Saharan Africa have the least access to financing, while the financing cost is the highest in the world. In most parts of the sub-region, household access to financing stands at less than 20%. The margin between borrowing and lending is by far higher than that in rich countries of the North.


Name: Gabriel Negatu Title: AfDB Director, Governance and Financial Reforms


    Chawki Chahed Phone: +216 71 10 27 02

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